Winn-Dixie’s Earnings Report is a Mixed Bag

By Mark Basch, The Florida Times-Union, Jacksonville

Feb. 21–There are a lot of ways to look at Winn-Dixie Stores Inc.’s first post-bankruptcy financial report, which showed a big profit for the quarter ended Jan. 10 but a net loss for the eight weeks after the company emerged from Chapter 11.

But Chairman and CEO Peter Lynch was pretty happy about the results he saw in the report issued Tuesday.

“I am encouraged by the trends we are seeing in sales and margins,” he said in a conference call.

“I believe the upside potential for our company is tremendous.” Winn-Dixie reported net income of $286.8 million for the second quarter ended Jan. 10, but that was entirely due to accounting changes related to the company’s Nov. 21 emergence from Chapter 11 bankruptcy.

Aside from those changes and other special items, the Jacksonville- based supermarket chain reported an operating loss of $66.5 million for the quarter and an operating loss of $11.4 million for the eight weeks ended Jan. 10, representing the period after emergence from bankruptcy.

But Winn-Dixie’s earnings before interest, taxes, depreciation and amortization — known in the financial world as EBITDA — were positive in the quarter and in the eight weeks. Sales trends, omitting stores affected by hurricanes Katrina and Wilma in 2005, were also positive.

That’s why Lynch was happy about the results.

“Those are two key metrics which our company floundered on for years,” he said in an interview after the conference call.

Winn-Dixie’s EBITDA was $1.4 million in the quarter, and Lynch said he expects EBITDA to be positive for the full fiscal year.

“EBITDA is a much better measure of how the ongoing enterprise is performing,” Chief Financial Officer Bennett Nussbaum said, when asked why that measure is important.

“It’s a clean way of looking at how the business is performing through the period of reorganization,” he said.

Nussbaum acknowledged that it’s been difficult to evaluate Winn- Dixie’s financial statements through the bankruptcy process, which began two years ago.

“There’s been so much non-cash noise on our income statement,” he said. For example, the accounting changes that helped Winn-Dixie show an overall profit for the second quarter were non-cash charges that are not related to the operations of the company’s stores.

Winn-Dixie reported total sales of $2.23 billion in the quarter, slightly lower than the second quarter of the previous year.

Identical store sales, a key measure of a retailer’s performance, declined 0.5 percent. But in areas not affected by the 2005 hurricanes, identical store sales rose 3.5 percent, the company said.

But David Livingston, a Wisconsin-based supermarket analyst, thinks that 3.5 percent increase isn’t good enough. Based on inflation and population growth in Winn-Dixie’s Southeastern markets, he thinks supermarkets need to grow identical-store sales by at least 4 percent.

“If you’re not at 4 percent, you’re going backward,” he said.

Livingston has also been skeptical that Winn-Dixie can improve its store operations enough to compete in the marketplace, because other supermarkets are getting stronger.

“The competition is not standing still waiting for them to catch up,” he said.

But Lynch is confident that Winn-Dixie can attract customers with its store remodeling program, now that it’s out of bankruptcy. The company, which has 522 supermarkets in five states, plans to upgrade 75 stores a year, including 18 to 22 in the current fiscal year. The first remodel in the Jacksonville area, the company’s Macclenny store, should be complete within 30 days, Lynch said.

Tuesday’s conference call with analysts was the first since Winn- Dixie filed for Chapter 11 bankruptcy, exactly two years ago. Lynch invited the analysts to come meet with him and visit the remodeled stores.

“I think we’ve got a great story here and I want to tell it,” he said.

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